Every Day Is Groundhog Day in the Euro Zone

Groundhog handler Ben Hughes watches Punxsutawney Phil after he did not see his shadow predicting an early spring during the 125th annual Groundhog Day festivities on February 2, 2011 in Punxsutawney, Pennsylvania.

Groundhog Day comes early. Stop me if you've seen this headline before: “Greece’s Papademos Says Major Progress Made in Debt-Swap Talks.”

Groundhog Day may be two days away, but in the European Union, every day is...oh forget it.

Here's the bottom line. The private-sector deal is not where the trader focus is: Even if it happens, Greece is so far off its budgetary targets that it will require additional international assistance, either in the form of cuts in public sector debt, or aid above and beyond the current aid package of 130 billion euros ($171 billion) (which has not been disbursed yet), or both.

This change of focus began last week, when the Germans leaked that they wanted a budget czar for Greece. That put the focus clearly on the austerity package being negotiated as part of the aid package, rather than on the private debt deal.

Cuts in Greek public sector debt? The European Central Bank says no, no, no...but the cracks are emerging. Eurogroup head Jean-Claude Juncker (also prime minister of Luxembourg), speaking to German public broadcaster Deutschlandfunk, said he won't rule out public sector creditors taking haircuts...after the private sector deals are concluded.

“Thereafter we can consider whether others need to be ready to provide further assistance,” he said.

One trillion euro ($1.3 trillion) ECB facility? Immediately after the ECB lent 489 billion euros ($643 billion) in its three-year facility in December, I was on the floor reporting that traders were saying the second three-year facility on Feb. 29 could get as much as 1 trillion euros in borrowing. Today the Financial Times said that three bank CEOs indicated they would take two to three times as much as they took in the last offering, implying there may indeed be a 1 trillion offering. The FT did not name the banks or how much they took in the first offer.

The EU summit ended with another whimper, rather than a bang. Was it that the Greek deal still was elusive? Even German Chancellor Angela Merkel crowing about the new fiscal treaty, calling it a "masterpiece" because it was assembled in such a short period of time, did not elicit a cheer across Europe.

Two problems:

a) It's the economy, stupido. Austerity fatigue is settling in throughout southern Europe. Spanish gross domestic product fell 0.3 percent in the fourth quarter, the first quarterly decline in two years, partly on massive government spending cuts, underlying the main rallying cry of southern Europe — austerity alone won't be enough.

Under the new debt treaty, governments will be required to make debt payments a priority. That means money that could be devoted to spurring the economy will not be spent.

b) Ratification issues. Two of the 27 states — the U.K. and Czechoslovakia — did not sign the treaty. The Czech prime minister said he did not sign because “of its content and also because of a lack of clarity regarding its ratification and the effective date,” according to a statement on the government's website. But others — notably Ireland, which unlike the U.K. and Czechoslovakia does use the euro — have said they will likely require referendums to approve the treaty. Dicey.

Elsewhere:

1) Ending the month on a strong note...major U.S. indices are looking at their best January debut in more than a decade.